What to do if You Have Bad Credit When You Need a Loan

A good credit score is crucial to having healthy finances. The sad truth is that without it, you won’t be eligible for loans or a mortgage. Imagine having chosen a new car, knowing full well you can afford it, but your application doesn’t pass the credit check at the car dealership.

This type of situation can be quite devastating, but there are ways to avoid it. Improving your credit score is one of them.

It’s not always clear how credit scores are calculated. Somehow, the formula is still a bit of a mystery. At the very least, you can be aware of what causes bad credit.

What causes bad credit?

In Canada, a credit score of under 560 is considered poor. The following factors can make your score drop quickly:

  • Late payments:Your credit history counts for 35% of your credit score. Pay on time, and you can be sure to avoid damaging your credit.
  • Defaulting on loans: A single missed payment on a secured loan will not hurt your credit score, but multiple defaulted payments will. It’s important to note that a repossession will remain on your report for seven years.
  • Judgments: Judgments are legal tools issued by the court system that oblige you to make late reimbursements.
  • Foreclosures: A foreclosure illustrates a history of late payments and is as dangerous as a default on loans.
  • Bankruptcy: Filing for bankruptcy should be your very last resort—it is the most damaging to your credit score. Your first bankruptcy will mark your credit report for six to seven years.

Steps to Improve Your Bad Credit Score

  • Pay your bills on time: If you can’t afford to pay, contact your bank immediately and negotiate a long-term payment plan.
  • Be careful when applying for credit products: Your credit score will be affected if you apply for too many credit products at once. Before applying, ask yourself if it’s really necessary.
  • Apply for a secure credit card: Secure credit cards require a security deposit equal to the limit you want on your card. If the cardholder does not miss a payment, they can apply for a regular card a few years later, and the initial deposit will be refunded.

If a bank still refuses your application, and you find yourself in an urgent financial situation, there are other alternatives.

Private Lenders are a Fast and Easy Solution

Private lenders have much easier and quicker processes than banks, especially if they offer their service online. While their eligibility criteria vary, they are still much more lenient with regards to acceptance. Rather than evaluate your credit score, their concern is whether you can repay them.

Generally, they only ask that you have a credit score equal to or over 550. They also don’t require many documents except your ID and paystubs from the last two to three months.

Private lenders in Canada usually require you to:

  • be able to pay by direct deposit
  • be a Canadian citizen
  • be 18 and older
  • have a steady job for at least three months

Most private lenders take less than 24 hours to process your request. So, if you’re in a tough spot and need money immediately, lenders such as iCASH can be a good solution.

A bad credit score affects your life in many ways, but there are also many ways of improving it. The best thing you can do for yourself is budget wisely and keep your finances as organized as possible.